Hemkunt Steel & Wires (P) Ltd. Vs DCIT (ITAT Delhi)
The Income Tax Appellate Tribunal (ITAT), Delhi Bench, has sent back several disputed tax issues concerning Hemkunt Steel & Wires (P) Ltd. to the Commissioner of Income Tax (Appeals) [CIT(A)] for fresh examination. The ruling addresses the assessment year 2008-09 and involves additions made by the Assessing Officer (AO) related to deemed dividend, disallowance of interest expenditure, disallowance under section 14A for expenses related to exempt income, and the classification of service charges income.
The assessee, Hemkunt Steel & Wires (P) Ltd., had challenged the CIT(A)’s order dated November 14, 2011, raising several grounds of appeal.
Deemed Dividend under Section 2(22)(e):
One of the primary disputes revolved around the addition of ₹33,99,003 as deemed dividend under section 2(22)(e) of the Income Tax Act, 1961. The AO had initially added ₹3,40,79,003, treating unsecured loans taken by the assessee from M/s PSB Industries (India) Pvt. Ltd. and M/s Skipper Sales Pvt. Ltd. as deemed dividend. The AO noted the assessee’s significant shareholding in these companies (46.87% in PSB Industries and 20% in Skipper Sales).
The assessee contended that the loans were taken for business purposes. However, the AO rejected this, partly because PSB Industries had sufficient reserves and surplus. The CIT(A) restricted the addition to the extent of the reserves and surplus of PSB Industries (₹33,99,003) and deleted the addition related to Skipper Sales due to the absence of accumulated profits. The CIT(A) cited the Bombay High Court decision in Walchand & Company Ltd. Vs. CIT (1971) 100 ITR 598.
